(Updates news, yields and table)
By Kate Duguid
NEW YORK, April 17 (Reuters) - The U.S. yield curve on
Tuesday was at its flattest in over a decade, driven by rising
short-dated Treasury yields and a fall at the long end, even as
geopolitical and trade risks eased.
Two-year yields were at a decade high of 2.399
percent as economic data from March supported further interest
rate hikes by the Federal Reserve in 2018.
U.S. homebuilding increased more than expected in March amid
a rebound in the construction of multi-family housing units,
despite weakness in the single-family segment. The data followed
a report on Monday from the U.S. Commerce Department that showed
retail sales in March rose 0.6 percent, after three months of
declines.
"Even with the bad weather in March, the data has really
strengthened, supporting the view that the Fed will most likely
have to hike rates in June," said John Herrmann, director of
U.S. rates strategies at MUFG Securities in New York.
While the rising yields on short-dated debt anticipate
interest-rate hikes, the fall at the long end suggests the
market has dim view of U.S. economic health in the long term -
that the first quarter's outcomes will not persist throughout
the year, or that the Fed will continue to increase interest
rates regardless of whether economic data weakens.
Longer-dated Treasuries are a global safe-haven investment.
Demand typically increases as geopolitical and market risk
rises, pushing down the long end of the yield curve. But
Tuesday's flattening followed a reduction in risk, suggesting
the trade indicates investors' views about U.S. economic
fundamentals.
"The flattening we saw several weeks ago was related to
risk. And at least in terms of daily headline thinking, there’s
less risk perceived that you have to worry about tomorrow," said
Jim Vogel, interest rate strategist, FTN Financial in Memphis,
Tennessee.
Beijing on Tuesday made a trade concession to the United
States by lifting a limit on foreign ownership of Chinese
carmakers. The announcement represents a major policy shift and
suggests China may be willing to negotiate in the ongoing trade
dispute between the two countries, reducing the possibility of
dramatic economic fallout.
The muted reaction to Saturday's U.S.-led air strikes in
Syria suggests the market has grown less concerned about
possible retaliation.
The spread between two- and 10-year Treasury bond yields
hit 41.80 basis points, its lowest level since
2007. The spread between five- and 30-year yields
fell to 31.70 basis points, a low of more than a decade.
The benchmark 10-year government bond was last
at 2.819 below its last close at 2.832.
Tuesday, April 17 at 1547 EDT (1947 GMT):
Price
US T BONDS JUN8 145-28/32 0-13/32
10YR TNotes JUN8 120-136/256 0-16/256
Price Current Net
Yield Change
(pct) (bps)
Three-month bills 1.76 1.7925 0.039
Six-month bills 1.95 1.9968 0.005
Two-year note 99-188/256 2.3898 0.013
Three-year note 99-146/256 2.525 0.006
Five-year note 99-42/256 2.6813 -0.002
Seven-year note 99-12/256 2.7766 -0.007
10-year note 99-104/256 2.8193 -0.013
30-year bond 99-224/256 3.0062 -0.024
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 29.25 -1.75
spread
U.S. 3-year dollar swap 23.25 -1.00
spread
U.S. 5-year dollar swap 12.25 -0.75
spread
U.S. 10-year dollar swap 3.50 0.25
spread
U.S. 30-year dollar swap -12.50 0.75
spread
(Reporting by Kate Duguid
Editing by Nick Zieminski and Dan Grebler)